A new study by intergovernmental body, the United Nations Conference on Trade and Development (Unctad), on the impact of Brexit on UK exports, has found that the UK is at risk of losing up to 14% of its exports to the European Union (EU) in a “no-deal” Brexit.
Nontariff measures (NTMs) could cause major fractures in post-exit trade relations between the UK and the EU, knocking up to $32-billion, or 14%, off of UK exports to the EU, the study shows.
NTMs are policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices, or both.
These are the key factors mediating market access in the world economy.
Potential losses under a “no-deal” Brexit from tariffs that may be imposed by the respective parties are estimated at between $11.4-billion and $16-billion, or 5% to 7%, of current exports.
The study, ‘Brexit beyond tariffs: The role of non-tariff measures and the impact on developing countries’, says NTMs will likely double those losses.
The study also projects that even if a standard free trade agreement were to be signed by the parties, the UK’s exports could still drop by 9%.
Such losses will deal a major blow to the UK’s economy, as the EU market accounts for 46% of the UK’s exports.
Mounting trade costs owing to NTMs and potentially rising tariffs will more than double the adverse economic effects of Brexit for the UK, the EU and developing countries, the study notes.
“EU membership has its advantages to deal with NTMs that even the most comprehensive agreement cannot replicate. This offers important lessons to other regions trying to deal more effectively with such NTMs,” says Unctad international trade director Pamela Coke-Hamilton.
POTENTIAL BOON FOR DEVELOPING COUNTRIES
On the flip side, exports from developing countries into the UK, and to a smaller extent into the EU, may increase if the former does not increase tariffs for third countries.
A no-deal Brexit could offer some opportunities for developing countries as trade barriers between the UK and the EU would benefit suppliers from third countries. By contrast, a deal between them would preclude the incentive to turn to third countries, the study finds.
However, the positive third-country effect could be diminished by increasing regulatory divergence.
If the UK’s regulations diverge over time from the EU’s, trade costs would rise for third countries owing to production process adjustment costs and potential duplication of proofs of compliance. This would disproportionately affect smaller and poorer countries, as well as small and medium-sized enterprises.
The study quantitatively explores the post-Brexit role of NTMs and the consequences for developing countries by simulating possible impacts using a panel data gravity model.
Under a tariffs-only scenario, exports from developing countries to the UK would increase by 1.3% to 1.5%, while a tariffs-and-NTMs scenario would see exports rise 3.5% to 4%, according to the study.
The positive impact would be strongest in the agriculture, food and beverages, wood and paper sectors and weakest in the electrical and machinery, metal products, chemicals and textiles and apparel industries.
‘HARD’ AND ‘SOFT’ EXIT SCENARIOS
The UK left the EU in January. The two parties aim to determine their future trade relations during a transition period that lasts until the end of this year.
While a “hard” exit scenario would result in the study’s projections, the economic effects of a “soft” exit in which the status quo is largely maintained pending negotiation of a future trade relationship would depend on the details of that relationship.
Based on the study’s results, that relationship should deal with NTMs in a more comprehensive way than typical free trade agreements and customs unions observed in other parts of the world to minimise potential negative effects.